The FCA has written to all mortgage intermediary firms setting out its supervisory agenda for the next 12 months. The six page letter sets out the key issues it is concerned about –
- firms should be able to clearly demonstrate why their customers have been advised to take a particular product and the customer should also understand the reasons for the recommendation;
- customers should be clear about all the fees they are paying, the implications when these are added to the loan and firms are asked to ensure these are not excessive, particularly in relation to the size of any new lending;
- firms must have adequate systems, controls and risk management frameworks to reduce the risk of mortgage fraud.
The headlines to date have focussed on the two core pieces of work on the second charge market and the world of lifetime mortgages. From previous work, firms should not be relying on disclosure of their limited scope of service or advice, or relying on others in the “chain”. Although a customer might start on a second charge or equity release route it remains the adviser’s responsibility to ensure that the product is suitable. Other product options must be considered and sign-posted where relevant.
In addition to these however, there are a significant number of robust messages for firms. Covid-19 may increase the risk of unsuitable advice, particularly if consumers seek to address any short-term financial pressures without understanding any longer-term implications. The FCA is also concerned that advisers might seek to address their own income shortfalls by providing services where they may not have the relevant experience. Diversification runs risks and areas such as will planning and funeral plans have long-term implications.
The FCA has made clear that where firms increase their number of advisers and/or ARs there must be a corresponding increase in resources to ensure that adequate systems and controls are maintained. There are coded messages over the risks associated with the growth in the number of advisers operating under a “self-employed” banner. Where they see significant growth in firms, they will contact them to assess if the changes made to oversight arrangements are appropriate. Firms are encouraged to ensure that appropriate due diligence is carried out on any adviser, AR or introducer it uses. This should include monitoring the quality of business, taking steps to improve introducers, advisers and ARs’ understanding of the firm’s expectations, and being bold in addressing any issues it may encounter.
Firms are told they can use trading names and, when used, the trading name should be added to the Financial Services Register. However, a firm must not add a separate and independent unauthorised firm as a trading name and allow it to carry out a regulated activity without being authorised or being an AR. Firms or individuals conducting business in their own right should not be registered as a trading name but should instead apply to be directly authorised or become an AR. The expectation is that firms are accountable under their Senior Management Regime responsibilities.
Firms should also remember they are responsible for reporting any wider suspicions of fraudulent activity. The FCA expects firms and their advisers to able to spot inaccurate or implausible information, including payslips, accountants’ certificates, tax returns or bank statements. They will continue to actively monitor the risk of fraud within the portfolio via their mortgage fraud strategy and will take the appropriate action where necessary. They expect brokers to support lenders in rooting out fraud.
This is the first time the FCA has set out its expectations with such clarity. There will be no excuse for firms not to know, as the letter has gone to all firms.
Chief Executive, AMI